Maybe the focus should really be on what is down! Over the past year we have reduced the average fees you pay your mutual fund managers by around .5% a year. That means on a portfolio of $1 million a savings of $5,000. That’s the good news, and some rather substantial good news at that! An extra half of a percent over a 10 year period on $1 million grows to $70,000!
The bad news is that if your portfolio is using the DFA funds (we use them in larger portfolios) you will be seeing more $24 transaction fees when we buy or sell. Why? Most mutual fund managers charge around 1.00%. Often, they give .10% of this to TD Ameritrade in lieu of TD charging their normal $24 fee. These are listed as NTF funds (No Transaction Fee). Vanguard, DFA, and other low cost managers who typically charge much less (say .20%) don’t have the financial cushion to rebate any of their fee to TD, so the $24 transaction fee applies to their trades.
So, the trade off for reducing your management fees .50% was that now you will pay transaction fees on the DFA transactions. We estimate transaction fees probably won’t amount to more than several hundred dollars a year for most accounts. This cost will be a fraction of the management fee savings.
Our new rebalancing software from Tamarac allows us to easily see all the fees charged in every transaction. As a rule, we do not trade an account where the transaction fee is greater than 1% of the purchase or sell. This basically means where there is a transaction fee of $24, the minimum trade we allow is $2,400.
In our smaller portfolios we still use NTF funds and a number of ETF funds that carry low (or in some cases no) transaction fees.
Be assured we are always looking for ways to add value to our services and save you (and me since my retirement funds are invested in the same manner as most of you) money.